Question: The Shell out Corp. owns a piece of petroleum drilling equipment that costs $100,000 and will be depreciated in 10 years by double declining balance

The Shell out Corp. owns a piece of petroleum drilling equipment that costs $100,000 and will be depreciated in 10 years by double declining balance depreciation, with conversion to straight-line depreciation at the optimal point. Assume no salvage value in the depreciation computation and a 34% tax rate. Shell out will lease the equipment to others and each year receive $30,000 in rent. At the end of 5 years, the firm will sell the equipment for $35,000. (Note that this is different from the zero-salvage-value assumption used in computing the depreciation.) What the after-tax rate of return Shell is out will receive from this equipment investment?

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